Investigating the moderating effect of product market competition on the relationship between advertising and sales costs in companies listed on the Tehran Stock Exchange

Dissertation for Master of Accounting (M.A.)

Research overview

Abstract:

In this century, the intensity of competition and the complications and uncertainties caused by it have made the management of companies to be more sensitive to spending their financial and non-financial resources, and all they try is to spend resources in a place that creates value for the company. One of the activities that create value for companies is marketing and advertising activities. Considering the importance of advertising and marketing in the field of product market competition and the relationship it can have with the sales of companies, the purpose of this research is to investigate the moderating effect of product market competition on the relationship between advertising and sales costs in companies listed on the Tehran Stock Exchange. The statistical population of this research is the companies accepted in the Tehran Stock Exchange and its statistical sample includes the data of 80 companies for a period of 8 years (1384-1391). Multivariate linear regression statistical analysis has been used to test the hypotheses of this research at the 5% error level. The research results show that there is a positive relationship between advertising costs and sales, and when advertising costs increase, sales also increase. Also, the research results show that when the competition in the product market increases, the effect of advertising costs on sales also increases.

Key words: product market competition, market concentration, advertising, sales.

1-1- Introduction

The generalities of the research present the different aspects of the research in a brief way so that the audience can have a mindset. Kelli about the topic of research, its importance and necessity. One of the most important parts of this chapter is dedicated to stating the research problem, which describes and justifies the research topic and explains the problem that the research seeks to solve. Then the goals that the research aims to achieve are presented. In the next sections, the logic and reasons for choosing the subject are stated in order to clarify the importance of the subject for the audience, and the applications that the results can have are discussed. Then the hypotheses, the spatial, temporal and thematic scope, the method and the statistical population of the research are discussed and finally the key words of the research are presented. Competing with many factors at the national and international level and expanding their activities through investment are new and they need financial resources to survive and invest. But the sources of finance and its use must be well determined so that the company can be profitable, and it is the duty of the financial manager to determine the sources of financing and how to use it. There are many views on the relationship between the capital market and the product market, which determines that the company manager should also consider the competition in the product market when making financing decisions. Financial and industrial economists have increasingly realized the relationship between competition in the product market and financial decisions of companies (Gani et al. [1], 2011). Also, based on the existing literature, competition in the product market is considered as an extra-organizational governance mechanism and an important and vital factor in decisions related to information disclosure by companies. Competition in the product market, on the one hand, forces companies in similar industries to look for information from competitors and on the other hand to hide their own information to have a competitive advantage (Teng and Li [2], 2011).

     In the current century, the intensity of competition and the complications and uncertainties caused by it have caused the management of companies to be more sensitive to the use of their financial and non-financial resources, and all they try is to spend resources where it creates value for the company. One of the activities that create value for companies is marketing activities. Marketing activities can be summarized in the marketing mix (price, place, product and promotions) and one of the components of this mix is ??promotions and specifically advertising. Advertising is one of the most tangible and expensive marketing activities (Kanchar et al. [3], 2005).

     In addition to the effects of advertising costs on sales revenue and profitability, these costs affect the value of intangible assets and the company's ability to increase cash flows and shareholder value. Advertisements, information about prices, product specifications, existence of products and sellers, etc. and the manager, in order to maximize profit, must simultaneously establish appropriate levels of advertising volume and price. This happens when the additional profit from the sale of an additional unit of the product through the use of advertising exceeds the expenses from the additional advertising necessary to sell one unit (Khorshidi, 1372). Due to the intensification of competition between companies and efforts to maintain survival, companies seek to increase the price of their shares in the market so that they can attract more investors, so they must have more dividends than other competitors and to achieve this goal, they must increase their incomes. One of the factors that influence the increase in company income and companies have made large investments in it in recent decades is advertising (Hejazi et al., 2019). Marketing activities, on success Sales of goods and products are concentrated in the market. Also, the senior managers of economic enterprises realized that the ultimate goal of marketing is to help increase shareholder returns. In today's world, with the rapid progress of science and increasing global competition, companies may increase their research and development and advertising expenditures. Whether advertising and research and development expenditures generate expected future economic benefits or not is an important accounting issue in academia and practice. If the expenditure provides future economic benefits, it is considered capital, otherwise, it is considered a current period cost (Han et al. [4], 2004). According to the stated principles, the main purpose of this research is to examine the moderating effect of competition in the product market on the relationship between advertising costs and sales in companies listed on the Tehran Stock Exchange, in other words, the goal is to answer the question whether the moderating effect of competition in the product market has an effect on the relationship between advertising costs and sales in companies listed on the Tehran Stock Exchange? Before the companies, there is a significant difference and distance between the value reflected in the balance sheet and the current value of the company. The main causes of this difference are the drivers that are the source of value creation for the company but are not reflected in the books and accounts, such as: organizational knowledge, customer satisfaction, innovation in product supply, etc. What is of interest to the shareholders and the capital market is no longer limited to the tangible assets and liquidity of the company, but the intangible and value-creating factors of the company have been noticed, and one of these intangible factors can be considered advertising (Fakharian, 2012). Considering the importance of advertising and marketing in the field of product market competition and the relationship it can have with the sales of companies, the purpose of this research is to investigate the moderating effect of product market competition on the relationship between advertising and sales costs in companies listed on the Tehran Stock Exchange. As a result, the practical goals of this research are as follows:

Determining the impact of advertising costs on the sales of companies listed on the Tehran Stock Exchange.

Determining the moderating effect of product market competition on the relationship between advertising costs and the sales of companies listed on the Tehran Stock Exchange.

The results of this research can be used in the following areas: Necessity of doing research

Due to the intensification of competition between companies and efforts to maintain survival, companies seek to increase the price of their shares in the market so that they can attract more investors, so they must have more dividends than other competitors and to achieve this goal, they must increase their incomes. One of the factors that influence the increase in company income and companies have made large investments in it in recent decades is advertising. Now knowing that the cost of advertising can be a factor affecting the sales of companies, understanding how competition in the product market can affect the relationship between the cost of advertising and sales, we are trying to prove the existence of a relationship between the costs of advertising and sales of companies, and how product market competition can affect the relationship between cost of advertising and sales.